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U.S. equity indexes struggle for direction: S&P 500 ~flat
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Utilities leads gains in S&P sectors, tech falls most
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May UMich prelim sentiment < est
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Euro STOXX 600 index up ~0.4%
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Dollar, crude rise; gold slips; bitcoin down ~2%
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U.S. 10-Year Treasury yield rises to ~3.43%
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AI: THREATENING HUMANITY WHILE SAVING THE MARKET (1015 EDT/1415 GMT) Artificial intelligence pioneer Geoffrey Hinton is worried about the dangers of a technology which was designed to perform tasks that used to require human intelligence. Earlier this month Hinton told Reuters that AI could pose a "more urgent" threat to humanity than climate change. That may very well be the case, but in the meantime, traders can't seem to get enough of it as the hype around AI has been boosting the stock market, never mind concerns about real-life worries like a potential recession or banking crisis contagion.
According to research from Societe Generale's Manish Kabra, AI-popular stocks have boosted the market to such an extent that the S&P 500 would be down 2% so far this year, not up 8% if it wasn't for the gains in a selection of "AI-popular stocks" which have rallied because of bets that they'll make it big in AI. Just this week Google's market heavyweight parent Alphabet has provided a big boost after it announced plans to roll out more artificial intelligence for its core search product as it looked to create some of the same consumer excitement generated by Microsoft Corp's update to rival search engine Bing in recent months.
For the year-to-date Alphabet shares are up about 32%, while Microsoft has risen roughly 29%.
Other AI popular stocks Societe Generale has pointed to include Nvidia , up roughly 97% year-to-date, and Facebook parent Meta , up roughly 95% so far in 2023. But Kabra points to the risks of narrow market leadership, which is when a small number of big stocks push indexes higher. He sees narrow performance across S&P 500 sectors with 8 out of the 11 industry groups seeing market-cap weighted indices outperforming equal-weighted indices. He notes that without the AI boom stocks, the S&P 500 would be trading below 3800. It was last at 4131.39.
And the strategist sees the narrow performance persisting against an unfavorable backdrop for leveraged, small-cap, value stocks and companies that made unsustainable buybacks. Kabra sees the S&P 500 stuck in a 3500-4200 range and notes how it is now close to the top of that range. But he sees a mild recession restarting a secular bull run in U.S. stocks. His recommendation, in the meantime, is for defensive growth stocks, staples and industrial stocks. On Friday morning, Nasdaq is slightly red, while the S&P 500 is around flat, and DJI is edging up.
(Sinéad Carew)
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NASDAQ COMPOSITE: CLIMBING ITS WAY OUT OF THE JACKSON HOLE (0900 EDT/1300 GMT) The Nasdaq Composite has now closed at its highest level since August 25, 2022, or the day before Fed-Chair Powell's hawkish Jackson Hole speech which kicked off a sharp decline to new lows. Additionally, the tech-laden index is on track for a third-straight weekly gain. E-mini Nasdaq 100 futures are edging up in premarket trade suggesting the Composite can attempt to build on its gains when Friday's session kicks off:
The IXIC ended Thursday at 12,328.507 which was its
second-straight close above its September 12 intraday high at
12,270.189. That high had capped strength for 165 consecutive
trading days through Tuesday of this week.
The Composite now faces the 38.2% Fibonacci retracement of
its March 2020-November 2021 advance, which should now act as
resistance, at 12,552.36. The February-March 2022 lows should
also now be hurdles in the 12,555-12,588 area.
The Intraday high on the day of Fed-Chair Powell's August 26
Jackson Hole speech was 12,655.836, or about 2.7% above
Thursday's close.
Since mid-March of this year, the rising 50-day moving
average (DMA), which ended Thursday at 11,905, has contained
IXIC weakness.
Of note, the Nasdaq's daily advance decline line, since
hitting a new low a week ago Thursday, has been attempting to
stabilize. That said, it remains below its descending 50-DMA as
the great mass of Nasdaq stocks have been lagging, while the
biggest growth names continue to underpin strength.
The IXIC is up about 18% in 2023, vs about a 45% surge in
the NYSE FANG+TM index . With this, S&P 500 growth has strengthened further relative to S&P 500 value .
In fact, this week, the IGX/IVX ratio ended Wednesday and
Thursday back above its 200-DMA. Wednesday's finish above this
long-term moving average was the ratio's first since January 12,
2022.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
